New CEO Studies: Nuances of Narcissism, Flattery, and Opinion Conformity

I got my copy of the Administrative Science Quarterly in the mail the other day. You can see the cover to the left, it is famous for pretty pictures like this one by Signe Pike, whose mother Linda Johanson is the managing editor (and has been for at least 30 years I can recall). I was one of two associate editors for four years in the 90's and, although I liked doing it in many ways because the work was challenging and I especially liked working with Linda, the weight of having to write over 100 decision letters a year on papers (which would be sent out for evaluation by three anonymous peers first) eventually wore me down.

Academia is petty and I can be touchy, so I got especially tired of the hostility from people who got papers rejected as many academics have big egos and turn hostile in the face of rejection (ASQ is the most prestigious organizational research journal and rejects over 90% of papers submitted. It is so picky that it has been running late for years -- note the June 2011 issue just came out this week. But the quality is always very high.). There is even one author who is still mad at me because some 15 years later because, even though we accepted his paper, we wouldn't let him publish it until he fixed his lousy writing. I never thought I would be teaching freshman English to an Ivy League professor, but he needed it.

The journal has been in good hands in recent years, with the last editor being my scaling co-author Huggy Rao from Stanford and the new editor being Gerald Davis from The University of Michigan (who I worked with when he was a Stanford student 20 years ago or so).

Perhaps because I had just wrapped-up a doctoral seminar on leadership, there were two articles that really caught my eye. I wasn't shocked by the findings, and you likely won't be either, but was pleased with the rigor. The three studies from two articles were done in different ways, but the upshot is that CEOs are swayed heavily by praise and ass-kissing of all kinds, especially narcissists, and the effects aren't pretty. In short:

If you are a CEO, these studies show how hard it is for you to wade through and tune out all the bullshit and ass-kissing that come with the job. Those flattering stories that the press wants to write about you are dangerous to your organization's health -- especially if you are narcissist, but even you are not. And all that insincere ass-kissing and agreement from your board and your management team may help them get ahead, but can hurt you and your company. It can fuel an inflated self-assessment of your skills, cause you to cling to failing strategies, hurt your firm's long-term performance, and cost you your job.

I offer more details about these studies if you want to learn more; if all you want is the headline, I suggest you stop here.

The first was by Arijit Chatteerjee and Donald Hambrick, which compares highly narcissistic CEOs to to their less narcissistic peers in two studies. The first was a sample of 152 CEOs from 134 computer hardware and software firms. I loved their measures of narcissism: how prominently the CEO was pictured in the annual report; the number of times the CEO's name was mentioned in the typical press release; and the difference in compensation (both cash and non-cash) between the CEO and the next highest paid executives. They argue this measure is reliable and valid because these items were fairly highly inter-correlated (.71 was the Cronbach's alpha for measurement geeks) and they also had a panel of experienced security analysts rank 40 of the CEOs in terms of narcissism, which further supported their ranking method.

The findings of this first study focus on how narcissism appears to serve as a filter for outside cues. The highly narcissistic CEOs were less responsive to whether recent firm performance was good or bad -- they tended to continue to make equally risky investments (more risk was indicated by spending more money on R&D, big capital expenditures, and acquisitions of new companies) regardless of recent performance. In contrast, their less narcissistic peers became more cautious in bad times and tended to take bigger risks during good times. The most interesting finding was about media praise. The less narcissistic CEO's weren't affected much by media praise, but the highly narcissistic ones tended to make considerably riskier investments after getting praised in the media.

So the upshot is the narcissists were swayed more by "social praise" and less by recent performance!

Their second study dug into something called "acquisition premiums," the well-documented tendency for companies to overpay when they buy another company. This was measured by comparing the acquired company's stock price four weeks before the acquisition was announced to what it was finally sold for. The authors used a different sample of 131 big acquisitions (over 100 million) across diverse industries, and measured narcissism the same way as in the first study. They found some interesting parallels to the first study: Recent media praise tended to have a stronger effect on the acquisition premiums paid by highly narcissistic CEOs. A single flattering article was associated with paying a 7% larger premium among the less narcissistic CEOs (28% versus 35%) and a 14% premium (29% versus 43%) among the highly narcissistic CEOs.

In short, this research suggests that most companies pay big acquisition premiums, that recent media praise makes it even worse for all CEOs, and especially worse for narcissists.

The second article, which I will describe more briefly, is by Sun Hyun Park, James Westphal, and Ithai Stern. It looked at the impact suffered by CEOs who are surrounded by people who engage in (relatively) more intense and frequent flattery (e.g., offering exaggerated compliments) and opinion conformity (e.g., expressing agreement even when they don't quite agree) as measured by surveys of their board members and top managers. These very persistent researchers managed to gather these kinds of data about 451 CEOS. The findings probably won't surprise you much:

More flattery and opinion conformity was linked to CEOs having more favorable evaluations of their own strategic judgments and leadership skills, being less likely to make strategic changes when firm performance suffered (just like the narcissists in the first study), and more to prone to lead firms that suffered persistently poor performance. The authors also present suggestive evidence that flattery helps bring down CEOs in the end, that it not only is linked to weaker long-term firm performance, it increases the chances that those very same ass-kissing board members are going to fire the CEO when things turn south.

James Westphal and his colleagues have published many studies like this one that show how the social psychology of CEOs, boards, and top teams color their behavior in often discouraging ways. For example, an earlier study by these folks suggests that engaging in flattery is a smart personal strategy for board members want to gain additional lucrative appointments, as ass-kissing is associated with getting more board memberships -- especially for white males, but not so much for women and minorities!

As I said at the outset, none of this will likely surprise you. But it adds further fuel for skeptics who argue that CEOs are at least as irrational as the rest of us.

Taken together, this research provides lots of evidence about how boards and top management teams ought to act when selecting and dealing with CEOS and about the hazards that CEOs face -- and hints about why it is so hard for both CEOs and those who oversee them to do the right things. The headline for me is that praise and flattery often benefit those who provide it, but can be dangerous to those who recieve it.

Thanks for sharing the fascinating research. I also liked reading about your experience as an academic reviewer. I recently blogged about how to provide and receive constructive criticism for academic writing.... Of course always easier to dish it out than to take. You may appreciate "Figure 1. The distribution of writing ego across career path."